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EUR/USD is seen under pressure
The single currency keeps descending from this week’s maximum at $1.2385 hit on Tuesday. On the fundamental front European data disappointed, while American, on the contrary, were better than expected.
Investors await details on a new ECB scheme to help reduce the borrowing costs of Spain and Italy that the central bank is now considering. According to Reuters’ poll, conducted at the beginning of August, economists expect the euro zone’s central bank to start purchasing Italian and Spanish bonds in September and cut benchmark rate to new record minimum of 0.5%.
Standard Chartered: “EUR/USD is in a range for now but we still expect it to move lower in September on the prospect of more headlines out of Europe, a lot of event risk in September, and rate cuts as well. Our forecast for EUR is $1.18 by the end of the quarter.”
Nomura: According to the data, "central banks have been strongly accumulating US dollars. If this trend continues, demand for dollars will outpace that of euro, so it will be hard for EUR/USD to bounce meaningfully".
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Morgan Stanley: global economy under threat
According to specialists at Morgan Stanley, the global economy has fallen deeper into the twilight zone that divides slow economic rebound from renewed recession.
Specialists explain the cuts by the rise in policy uncertainty, mainly in the US, Europe and Japan and by the out-of-date emerging market economic models. In their view, EM policymakers chose the wrong economic path, what caused problems in China, India and commodity-exporting countries. It is interesting to note that the emerging markets suffer more than the developed markets as they vulnerable to extremely weak incoming data.
Specialists have cut their GDP growth forecasts to 3.2% in 2012 and to 3.5% in 2013 over the past three weeks.
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August 17: forex news
Asian markets are on the rise this week and higher-yielding AUD and NZD head for weekly gains versus yen. These currencies, however, are on the defensive against the greenback this week as US dollar strengthened due to positive American data.
EUR/USD keeps trading sideways in the $1.2370/2260 area. Euro is pressured by the rumors that Spain may ask for sovereign bailout earlier than expected. Spanish government meets today, so there’s the risk of some announcement. EUR/JPY is trading close to the 6-week high reached on Thursday around 98 yen as Germany signaled its support for the ECB’s approach to resolve the debt crisis. In Europe watch for Germany PPI at 06:00 GMT, euro zone’s current account at 08:00 GMT and the region’s trade balance at 09:30 GMT.
USD/JPY managed to close above 200-day MA yesterday – the sign that the bulls are gathering strength and will now have stronger support. The 2-year yields spread between US and Japanese bonds widened to 19.4, the maximal level since July 3.
USD/CAD breached support of 0.9900. Canada released July CPI data today (12:30 GMT).
Minneapolis Fed President Narayana Kocherlakota said yesterday that despite continued high unemployment the Fed may need to raise interest rates sooner than late 2014. Today in the US watch for August consumer sentiment data (13:55 GMT).
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Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2200, $1.2275, $1.2300, $1.2350, $1.2400;
GBP/USD: $1.5760;
USD/JPY: 78.35, 78.50, 79.00, 79.05, 79.10;
AUD/USD: $1.0405, $1.0600;
EUR/JPY: 97.00, 97.05, 98.00;
EUR/GBP: 0.7800, 0.7950;
AUD/JPY: 83.00.
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UK GDP may be revised upwards
According to many economists, the 0.7% UK GDP drop in Q2 may be a little too pessimistic. Last week the BoE Governor Mervyn King also spoke out on this subject: he said he expected the official GDP data to be better.
Data released this week are in contradiction with the output data: retail sales were a positive shock for the markets and the employment is rising. For this reasons the Q2 GDP contraction may be revised to 0.4% The figure is still negative, but obviously looks less threatening.
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USD/JPY: bullish view (Barclays)
Analysts at Barclays claim that USD/JPY may rise to 85 yen in 3 months. The main reason why the specialists are bullish on the greenback is that they think that American economy bottomed out in Q2 and its recovery will gain pace in Q4.
Yen tended to appreciate in August. This year, however, that may not be the case as US dollar is driven higher with the help of rising US yields. 10-year Treasury yield rose on Thursday to 3-month high 1.862%. Barclays underlines that many stock markets started rising already in June, while but Treasury yields kept falling until the end of July and reversed up only when Spanish yields eased off the record highs on the ECB’s pledges to do all it can to save the euro.
Chart. US 10-year Treasury yield (blue) and 10-year JGB yield (red)
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EUR/AUD moves on the upside
On Wednesday the Australian dollar weakens versus its major counterparts. EUR/AUD has already moved up from 1.1730 to 1.1830 levels. Today’s EUR/AUD rise may be the start of a new trend. If the pair manages to fix above 1.9000, we’ll see the bottom formed at 1.6000.
According to analysts, the pair follows the AUD/USD sharp decline caused by some aggressive Aussie selling. It’s important to remember that the RBA is concerned by Aussie's strength, so bearish comments from the regulator are possible.
Chart. Daily EUR/AUD
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Aspen Trading: buy EUR/AUD
Analysts at Aspen Trading Group are bullish on the euro vs. the Aussie. They recommend buying EUR/AUD at current levels, with a stop at 1.1650 and a target at 1.2000.
Chart. Daily EUR/AUD
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SocGen: EUR/USD in the $.2100/2500 area
Analysts at Societe General made an attempt to clarify on what grounds euro stands. The Specialists note that EUR/USD has moving sideways between $1.2100 and $1.2500 for the past few weeks.
“Euro is caught in between two opposing forces. On the one hand, the market is waiting to see if there will be a Greek holiday regarding them servicing their debt. On the other side, we have US data outperforming the G5 peers at the moment.”
Societe General recommends waiting for a sign that investors’ sentiment is really changing. According to the bank, this may happen as soon as Federal Reserve Chairman Ben Bernanke’s speech at Jackson Hole.
“If the euro breaks above 1.2500, it would probably mean that there is action coming from the ECB or the Spanish government, in other words, that something has happened to make us say there’s more room for appreciation in the euro. On the contrary, if EUR/USD breaks below $1.2100, it would mean that we’ve been disappointed by the ECB, so the US data and higher US yields are leading the direction.”
Chart. H4 EUR/USD
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Commerzbank: levels for EUR/USD
Analysts at Commerzbank note that EUR/USD is testing the 55-day MA at $1.2395. In their view, if the pair overcomes this level, it will be able to rise to $1.2440 (August maximum). According to the bank, the latter will contain at least in the near-term.
On the downside, the specialists think euro will become vulnerable for a slide to $1.2162/33 (mid-July minimum and the current August trough) and $1.2042 (July minimum) only if it falls below $1.2255 (Thursday’s minimum).
Chart. Daily EUR/USD
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